Cyprus banks: Orderly liquidation would only cost 9% of deposits

“A crime of international dimensions” 

Former Bank of Cyprus board member Evdokimos Xenophontos testified at the Investigation Committee last week and said that the resolution of the Laiki Bank, the transfer of the “good” Laiki into the Bank of Cyprus, the “fire” sale of the Greek operations of the three Cypriot banks and the bail-in imposed by the Troika on the Bank of Cyprus depositors was a “a crime of international dimensions”.
He said that the primary objective of folding the “good” Laiki Bank into the Bank of Cyprus was:
– To safeguard the recovery of the ELA receivable by the ECB which was guaranteed by the Central Bank and ultimately the state. “Had Laiki gone into liquidation the ELA debt would have been challenged by the other creditors (mainly the depositors) that at least to the extent that the ELA was granted to pay off other pressing depositors at a time the Laiki was quasi-insolvent it should rank pari-passu with the other depositors and not rank in priority as secured creditor.”
– To absolve the state from its responsibilities towards the so-called “insured” depositors who in a liquidation would rank pari-passu with the uninsured depositors and the state would have to make up/top up the shortfalls/losses of the insured depositors.
– To safeguard (effectively give priority to) certain creditors such as obligations to the state, to municipalities, to other banks, to insurance companies, etc. which obligations would in the event of liquidation rank pari-passu with the depositors and other creditors.
“The above process has not only deprived the Laiki depositors from their legal entitlements in the net assets of Laiki, but at the same time it eroded the legal entitlements of the BoC uninsured depositors. By burdening the BoC with the Laiki ELA obligations, the Laiki so-called “insured” deposits, and the Laiki obligations to the State, to Municipalities, to banks and insurance companies and giving them priority over the BoC “uninsured” depositors they deprived the said depositors from their legal entitlements.”
“The above process enforced by the Troika through coercion onto the Cyprus Government, amounted, in my opinion, to a crime of international dimensions.”
Xenophontos added that the "fire" sale of the Greek branches of the three Cypriot banks is a separate crime with a clear objective to downsize the three banks overnight and make a massive present to Greece over and above the GGBs PSI (which PSI of the GGBs was another crime “imposed” on the Cypriot banks and the Cyprus economy).
“I have calculated how much would be the effect on the depositors of BoC and of the CPB (Laiki) banks had the two banks gone either into an “orderly” liquidation or had they been bailed-in separately on an “orderly” basis and without ulterior motives or agendas. In the case of an orderly liquidation the depositors and other creditors of BoC as well as of the CPB would lose only 9% of their money, while in the case of an orderly bail-in the depositors of BoC would contribute 11% of their deposits in exchange of shares in BoC, while the depositors of the CPB would contribute 15% of their deposits in exchange of shares in the CPB. I have assumed that the “projected future losses” per the PIMCO report (adverse scenario) will be “realised”.
“It is obvious that what the Troika has designed, working together with Alvarez & Marsal (who were acting as advisers of the Central Bank of Cyprus) was not a “bank rescue” scheme but a “bank demolition” process in the case of the CPB and a “slow death” injection in the case of BoC.
“I suggest that the Investigation Committee examines the above in some depth if it wishes to have a full understanding of how we got to this mess.
“Furthermore, in my opinion, the Committee should also examine whether the present Board of Directors of BoC is acting for the best interests of the Bank of Cyprus shareholders and its other stakeholders (e.g. its depositors, its customers generally, the Cyprus economy etc.) or for the “prescribed” narrow interests/objectives of the ECB and the Troika,” Xenophontos concluded.